European sellers have had a tough week with crude oil and feedstock prices showing weaknesses and forecasted to dip lower and with buyers taking an exceptionally bearish attitude to offers.

Dated Brent crude hovered around $106-$107 per barrel last week, with minimal data indicating a clear direction. ICE gas oil numbers fell below $900 per metric ton last week, but as this report goes out both crude and distillate levels are firming, with the International Energy Agency suggesting that new strengthening economic growth — the first seen since 2010 — will increase demand for crude. The forecasts are fickle, however, and can be reversed on a pin head depending on which set of economic data is used.

These forecasts will have both short and long term effects on base oils and the prices of products. The market has already seen API Group I cutbacks throughout Europe due to poor realizations when compared to other petroleum products. In the past, base oils tended to have a mechanism for flattening out peaks and troughs. But when the trough is more than six months, producers rightly start asking if they should continue supplying such a poor contributor.

This background has paved the way for the current Group I base oil market in Europe and other contiguous areas in the EMEA region where suppliers are holding on to stocks to achieve selling levels above breakeven. Others move material as quickly as possible in order to minimize potential losses.

As a result, prices for Group I grades within Europe are now in rapidly extending ranges, with light solvent neutrals between $925 and $970/t, with the heavier grades such as SN 500 at $940-$990/t. Bright stock is offered between $1055 and $1095/t depending on quantity and presence of other grades in the cargo.

FOB prices refer to cargo-sized parcels of Group I grades ex mainstream producers in mainland Europe and North Africa.

Local European Group I sales are also following this trend with some buyers reportedly able to purchase material exceptionally low, whilst others who tend to buy from traditional contracted sources are suggesting that they are facing increasing prices with effect from Feb. 1. This appears to be a result of these suppliers taking the bull by the horns and declaring that they will not sell at a loss. Raising price levels in the market is perceived to be incredibly difficult. However, if sellers act at the same time, then it may be possible to force the issue and push prices at least to a minimum for profit.

Spreading wider, premiums of 55 to 120/t can be attributed to domestic prices over the reported export numbers.

Baltic and Black Seas

Baltic sales have declined since Jan. 1, with a number of suppliers and distributors still awaiting full replenishment. Levels for February loading appear to have settled around the last prices confirmed. FOB levels for SN 150 and SN 500 are on offer at $850-$875/t, although some smaller quantities are up to $895/t. SN 900 has been elusive this week, with one supplier confirming avails only for March delivery.

Russian, Uzbek and Turkmeni avails are still being touted around potential Black Sea buyers, but with Turkish buying interest still almost non-existent, the market is depressed, and the small number of transactions does not represent the total market. Receivers are neither accepting nor countering offers. Offers for SN 150 floated at around $875/t basis CIF Gebze, with Russian SN 500 offered at $890-$895/t delivered.

Middle East

Russian supplies of base oils have been filtering into Syrian ports, with the allocation of base oils and other products apparently being made on a non-commercial, government-to-government basis.

Red Sea trade has been curtailed by the South Sudanese situation, which affects importing base oils for inland blending plants. Parcels of Group I neutrals are still moving from Saudi ports to Middle East Gulf locations such as Oman and United Arab Emirates, with prices apparently holding up in the face of declining levels in U.A.E..

Iranian export of Group I SN 500, along with smaller quantities of SN 150 and SN 650, are still pervading the market with prices relatively stable for quantities routed through U.A.E. SN 500 is offered at an equivalent of around $900/t, but with Irans position on Middle East peace talks unclear, the prospect of normal trade is dismal.

Group I material continue to be sold through the Middle East Gulf region with Gulf Cooperation Council countries receiving imports as an adjunct to local production, although the arbitrage does not allow European material other than some Russian grades in. With a number of local blenders under license to produce finished lubricants on behalf of major brands, demand for quality Group I base oils is high.

U.A.E. reports that base oil imports are growing with increased demand for automotive lubes. More than one local enterprise is looking at establishing new Group I facilities within the Emirates, a move which would buck the global trend. The demand factor in Middle East Gulf is large and growing for medium and high viscosity Group I material and whilst Group II can carry the flag for many types of new generation lubes, Group I grades may still have a fundamental role in this region.

Africa

East Africa and South Africa reports include a number of small imports of Group I material from the usual Middle East Gulf and India sources, accompanied by rumors that another Baltic cargo is being negotiated for import into Durban. With Baltic prices around $850/t, there are possibilities for large parcels of SN 500 to be imported into this region, where local delivered prices are assessed at $1175-$1230/t. There are many interim costs involved in the movement of material to end users, but margins still exist which make this attractive.

West African prices remain, with some Nigerian importers now looking for further cargoes of Baltic exports which they consider to be low-priced. Imports for February and early March are estimated at existing prices of around $965-$1040/t in respect of the solvent neutral grades, with bright stock between $1140-$1170/t. Due to lack of avails, SN 900 has not been quoted.

Group II/III

Group II grades in Europe have come under pressure due to perceived discounting from U.S. and Far East producers. Levels have dipped, with light vis grades most affected. Some players are suggesting that prices for these grades will almost have to be brought into line with Group I light neutrals to ensure these grades will be accepted as alternatives.

Prices are lower with light vis Group II now between $1040-$1065/t. Their heavier counterparts such as 500N are still between $1125 and $1175/t.

Group II demand in Middle East Gulf regions appears to be buoyant but receivers of these imported grades are very much aware of potential oversupply occurring within Far Eastern source production. Meanwhile suppliers are still trying to increase prices for February arrival. With one faction looking in one direction, and the other side looking in the other, the scene is set for interesting negotiations in future cargoes of Group II base oils arriving into Middle East Gulf receivers.

Prices are maintained between $1030-$1045/t for the light vis grades. 500N and 600N landed into U.A.E. between $1110 and $1145/t.

European Group III offtake appears to be substantially up from pre-New Years levels. Users of these grades are perhaps preparing to stock up, gearing themselves for spring, when a large number of tenders start to be delivered to end-users. Prices do not appear to have either lifted or eroded farther.

Sellers are very aware of market conditions and in some cases are considering themselves fortunate not to be having to discount. End users appear to have accepted levels, with comments received from two independent sources implying that these parties did not want to risk any possibility of suppliers pulling back from the European markets, given commitments to quality and specifications.

Prices are 910/t in respect of 4 cSt grades, with 6 cSt some 10-15/t higher basis ex tank loading into trucks.

Ray Masson is director of Pumacrown Ltd., a trader and broker of petroleum products in East Grinstead, U.K. Contact him directly atpumacrown@email.com